The Broadbent Blog

Federal Poverty Strategy Discounts Needs of Seniors

The Poverty Reduction Strategy announced by the federal government at the end of August proposes that an official Canadian poverty line be set for the first time and enshrined in legislation; and that official targets be set to reduce the poverty rate by 20% by 2020, and by 50% by 2030.

The government has decided that the new official poverty line should be the Market Basket Measure or MBM. This choice can be questioned on several grounds, and has the potential to divert policy attention away from the needs of low income seniors.

As argued by the Broadbent Institute, any poverty line dividing the poor from the non poor at a given level of income and for a given household size is value-based. It involves a judgement as to how far below the mainstream standard of living and level of economic resources people should be allowed to fall before they are considered to be poor.

There has long been a debate as to whether poverty is fundamentally about so-called absolute poverty, meaning an inability to meet basic needs such as food, clothing and shelter, or so-called relative poverty, meaning too great a distance between the poor and the level of economic well-being of the wider society in which they live.

The MBM is more an absolute than a relative line. “Canada's Official Poverty Line reflects the combined costs of a basket of goods and services that individuals and families require to meet their basic needs and achieve a modest standard of living.” The MBM is defined for different communities based upon local living costs.

This measure has been chosen as the official line over the Low Income Measure or LIM which defines living in poverty as having less than one half of the median or mid point after tax income of a family of the same size. It is an explicitly relative measure and is widely used in international comparisons.

LIM effectively defines poverty as falling well below the mainstream standard of living, even if basic needs for food and shelter are being met. It is a more generous and inclusive measure which draws attention to inequality and not just severe material deprivation.

The poverty reduction strategy promises that Statistics Canada will continue to provide data on the LIM, but the choice of the MBM as the official line means that policy will inevitably be focused on reducing the MBM defined poverty rate. Having set official poverty reduction targets, the government will want to ensure that they are hit.

This has important implications for sub groups of the population, especially seniors.

In 2016[1], the poverty rate for all Canadians was 10.6% using the MBM, lower than the rate of 13.0% using the LIM. But there is a very large difference for seniors age 65 and over. Their poverty rate is just 4.9% using the MBM, far below the rate of 14.2% using the LIM.

In 2016, there were, using the LIM, 828,000 low income seniors making up 17.9% of all persons living in poverty. Using the MBM, there were 284,000 low income seniors making up just 7.6% of the poor.

The difference between the two measures lies in the fact that the Guaranteed Income Supplement on top of Old Age Security brings the great majority of seniors just above the MBM line, but leaves many with incomes well below the LIM poverty line. The 2016 LIM line - $22,657 for a single person and $32,042 for a couple – is modest but generally significantly higher than the MBM line (which varies by community.)

Trends in poverty rates for seniors tell us that conditions have been improving in terms of meeting very basic needs as defined by the MBM. But a rising LIM rate for seniors tells us that many seniors have experienced much lower income growth in recent years than have working age Canadians. (The LIM rate for seniors has increased from 8.0% to 14.2% since 200`, while the MBM rate has remained almost constant.) Private pension coverage has been falling, and government income support programs such as the Guaranteed Income Supplement (GIS) are indexed only to inflation rather than to wage growth.

The choice of the MBM as the official poverty measure will likely reinforce the current trend in social policy to focus resources on very low income persons to push them just above the poverty line, rather than to address the needs of those just above the poverty line and to pull them up compared to the middle-class. For example, the government has recently increased the Guaranteed Income Supplement only for very low income single seniors rather than for all GIS recipients.

A better approach would be to judge our progress on the basis of multiple measures of low income which capture growing inequality as well as material deprivation.

Andrew Jackson is Adjunct Research Professor in the Institute of Political Economy at Carleton University, and senior policy adviser to the Broadbent Institute.